L: What happens in a market?

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1 L: What happens in a market?

2 REMINDER: TYPES OF ECONOMIES 1. Traditional 2. Command 3. Market 4. Mixed *all about who answers basic economic questions/controls factors of production (land/labor/capital/ entrepreneurship).*

3 The Market System Demand, Supply and Price Determination

4 The Market System Microeconomics Deals with behavior and decision making by small units, such as individuals and firms Demand the desire, ability, and willingness to purchase a product at various prices (Why do YOU think that we would begin our study of market systems with DEMAND?)

5 Individual and Market demand Market demand sum of all individual demand schedules in the market Represented by a demand curve - negative slope, downward sloping from left to right (Mind your P s and Q s...demand goes Down and Supply goes to the Sky!)

6 The Demand Curve Price $10 The demand curve slopes downwards from left to right (a negative slope) indicating an inverse relationship between price and the quantity demanded. Demand will be higher at lower prices than at higher prices. As price falls, demand rises. As price rises, demand falls. $5 Demand Quantity Demanded

7 Individual and Market demand Demand Schedule listing that shows the quantity demanded at all prices Law of Demand demand varies inversely with its price more expensive the product the less the demand, cheaper = more demand

8 Demand Schedule Price of monthly NETFLIX subscription $24.99 $11.99 $8.99 $4.99 Quantity of subscriptions Demanded

9 Transition L 1. Write one thing you would buy at the store. 2. List 2 reasons why you might pay more for that item than someone else. 3. List 1 item that you could buy in place of that item. 4. List one item that you would buy to go along with that item.

10 The Demand Curve *Change in the quantity demanded due to a price change occurs ALONG the demand curve* Demand Curves can also shift in response to changing factors 1. Changes in the # of consumers 2. Changes in consumers income 3. Changes in consumer tastes 4. Changes in consumer expectations 5. Changes in prices of related products o o Substitute competing products that can be used in place of one another Change in the price of one causes the demand curve to move in the same direction Complement products that are used together Change in the price of one causes the demand curve to move in the opposite direction

11 L: Substitutes v. Complements ---Create a list of 5 substitute goods (pairs) and 5 complementary goods (pairs) ---Let s share some of our brilliant ideas with the class. :)

12 Smart Sellers Create Demand Pick any single product that you have bought in the last month. Come up with 5 ways to increase demand for that product.

13 The Demand Curve Changes in any of the factors other than price causes the demand curve to shift either: Left (Less demanded at each price) or Right (More demanded at each price)

14 The Demand Curve Price $10 Changes in any of the factors affecting demand other than price cause the entire demand curve to shift to the left (less demanded at each price) or to the right (more demanded at each price). D1 D2 Demand Quantity Demanded

15 Where would the Demand likely go if.? 1.The demand for peanut butter if the price of jelly goes up 2.The demand for Coke if the price of Pepsi drops 3.The demand for tennis balls if the price of tennis rackets goes up 4.The demand for turkey at if the price goes up. 5.The demand for teachers if the population grows. 6.The demand for IPods if the price drops. 7.Suzy s demand for cars if she wins the lottery. 8.Paul s demand for DVDs if he loses his job. 9.The demand for turbo tax in April. 10.The demand for cell phones if the monthly service fees go up. 11.The demand for electricity if the price goes up.

16 Shifts in Demand Curve Where will the curve shift? Demand Curve for Ice Cream Shop: Economy is in a recession New subdivision is built resulting in more families Frozen yogurt becomes cheaper Ice cream advertising campaign has famous endorser Weather turns hot Media campaign against obesity features ice cream A roadblock makes it difficult to get to your store The prices of the ingredients go up making your ice cream more expensive

17 Demand Elasticity Elasticity the extent to which changes in price cause changes in the quantity demanded Elastic Demand relatively small change in price causes a relatively large change in quantity demanded Inelastic Demand a change in price causes a relatively smaller change in quantity demanded


19 Elasticity Elasticity can be determined by 3 factors: Can the purchase be delayed? Need = inelastic; want = elastic Are substitutes available? Substitutes = elastic Is the product a significant cost to the consumer? Expensive = elastic


21 L: School Fundraiser --Choose two products you think would make a good school fundraiser. Create a projected demand schedule for each product with three possible prices. Create a demand curve for each product. How does diminishing marginal utility apply to your products? (Mark the point where you think the consumer would receive no additional satisfaction.) What substitutes exist for your product? How would your products demand change if you doubled the price of each product? If you doubled the price of a substitute good? Show where the demand curves would shift on your graph. Is the demand for each of your products elastic or inelastic? Why? Explain where your graphs would shift if there were A population decrease An income increase A change in tastes/preferences

22 Demand Curves Practice your own demand curves. #1-16 GLUE! #17-27


24 (warm-up) --Glue ½ sheet L. --Put notebook away, take out a writing utensil. :) When finished with the quiz, do the bonus, hand it in and work on ½ sheet. BONUS:

25 Market demand for pencils If pencils are free? additional students? 19. Wal-mart have sale next week? 20. Study shows pencils = :(? 21. Price of sub. dropped? 22. Price of complementary increased? 23. Coke lowers price, Pepsi? 24. Pepsi increases price, Coke? 25. Coke increases price, Pepsi? 26. Price of ketchup, mustard? 27. Price of mustard increases, ketchup?

26 Marginal Utility Marginal Utility the extra usefulness or satisfaction a person gets from acquiring one more unit of a product Law of Diminishing Marginal Utility the more units of a certain product a person acquires, the less eager that person is to buy still more of that product

27 The Supply Curve Supply quantities that producers are willing to sell at all possible prices Law of Supply the quantity supplied for sale varies directly with its price (profit motive?) (WHAT DOES THAT MEAN?)


29 Change in Supply Cost of Inputs cost of the factors of production Productivity if workers produce more, supply will increase Technology new tech, more supply Number of Sellers more suppliers, more supply Taxes and Subsidies taxes reduce supply, subsidies increase supply Expectations about future costs/regulations, etc. Government Regulations higher regulations lower supply

30 The Supply Curve --Changes in any of the factors OTHER than price cause a shift in the supply curve A shift in supply to the left the amount producers offer for sale at every price will be less. A shift in supply to the right the amount producers wish to sell at every price increases HINT: Be careful to not confuse supply going up and down with the direction of the shift!

31 The Supply Curve Price Supply $7 $3 The supply curve slopes upwards from left to right indicating a positive relationship between supply and price. As price rises, it encourages producers to offer more for sales whereas a fall in price would lead to the quantity supplied to fall Quantity Bought and Sold

32 The Supply Curve Price S1 Supply S2 $4 Changes in any of the factors affecting supply other than price will cause the entire supply curve to shift. A shift to the left results in a lower supply at each price; a shift to the right indicates a greater supply at each price Quantity Bought and Sold

33 Practice with supply Use the supply schedule to create a supply curve for Cozbi s Cameras. Then use the graph to answer questions 1-5.


35 Demand or Supply Do the following situations refer to demand or supply of TVs? 1. A convincing ad warns parents about the dangers of watching too much TV. 2. After a two month strike cable installers receive $1/hour increase. 3. A new cable company opens up. 4. The cost of renting DVDs goes down. 5. New technology makes installing cable less expensive. 6. A large factory nearby lays off 2,000 workers. 7. Cable TV begins a very popular children s show. 8. A cable TV transmitter is severely damaged by a storm and has to be replaced.

36 Supply and Demand Meet Work together to set prices in markets Equilibrium Price point where they achieve balance

37 Supply and Demand Meet Shifting a curve means a new equilibrium price.

38 Shortage Amount by which the quantity demanded is higher than the quantity supplied Horizontal distance between curves below the intersection point Signals the price is too low

39 Surplus Amount by which the quantity supplied is higher than the quantity demanded Horizontal distance between curves above intersect point Signals price is too high

40 Surplus explained to Michael Scott... com/

41 Government Price Controls Price Ceiling government set maximum price Rent control Price Floor government set minimum price Minimum wage

42 In a total free market, would there be government price controls? Minimum wage laws and rent controlled apartments are evidence that our economy in the United States is (but

43 L: Put the following terms on the graph below. *Price(P) *Quantity (Q) *Supply (S) *Demand (D) *Equilibrium (E) *Surplus *Shortage

44 Demand and Supply Practice Shift in Supply? Shift in Demand? Change in equilibrium/price? Price Floors? Price Ceilings? Shortage/Surplus?